First, let’s recognize that G.M. doesn’t need life support. What it needs is Chapter 11. The bankruptcy process is not a bad thing – indeed, it should be embraced. Bankruptcy allows companies to do tough things they could never do in the normal course of business. It has helped many companies turn themselves around and come out even stronger.
Will this mean a hit to auto workers’ benefits? Well, yeah, probably.
Bankruptcy would give G.M. enormous leverage with its debt holders – and, perhaps more important, with the U.A.W., whose gold-plated benefits are one reason G.M. is no longer competitive. A bankruptcy filing would also give G.M. the cover to close plants, rid itself of unprofitable brands and shed dealerships. In fact, unless G.M. files for bankruptcy, state laws would make it prohibitively expensive to shut dealerships.
Conditions on the deal? Yes.
Both companies would have to jettison brands – lots of them…. And then we need these companies to agree to serious, strict enforcement of gas mileage standards. They should be producing the cleanest cars on the street. We may lose hundreds of thousands of jobs in this industry in the near term, but with the right kind of innovation, we should have millions of new jobs in the next 10 years.
Finally, we need to kick out management. That Rick Wagoner, chief executive of G.M., can say with a straight face that he still deserves to run this company is laughable. It would be impossible for him to put in place the serious changes that need to be made because he carries too much baggage. He’d have to undo years of his own neglect.
Here’s this columnist’s suggestion for the government’s role, which entails not only helping to find DIP financing, but also to address the “psychological” issue that people may not want to buy cars from a company that’s in Chapter 11.
After all that is agreed, and only then, the government should come in with what’s known as debtor-in-possession financing to help the company through the bankruptcy process. Ideally, the government would be a “seed investor” and others would join it…. The government should [also] establish a warranty insurance fund that would insure the warranties of all G.M. and Chrysler vehicles bought while the combined company is still operating under bankruptcy protection. The cost to taxpayers should be next to nothing, assuming the company survives and can takeover the warranty obligations.
Here’s the toughest part:
G.M. currently employs about 8,000 people who actually don’t come to work. Those who do go to work are paid about $10 to $20 an hour more than people who do the same job building cars in the United States for foreign makers like Toyota. At G.M., as of 2007, the average worker was paid about $70 an hour, including health care and pension costs….
Part of the problem is summed up by comments like this one in The Detroit Free Press, made by Kandy O’Neill, 39, an assembler at G.M.’s plant in Lake Orion, Mich., where she builds the Chevy Malibu and Pontiac G6. “I think we’ve given enough,” she said about the cuts to her salary and pension plan.
“Everybody wants to come down hard on the workers,” she said. “Nobody knows what we do inside there but the people who work there. It’s hard. It is not an easy job.”
When you read a line like that you might sympathize with her, but then you realize that nothing can be accomplished without bankruptcy. Ms. O’Neill: your company is asking the taxpayers – many of whom don’t have health care coverage – to pay your salary and health insurance.
That is basically what this boils down to, isn’t it?
Nobody wants GM to shut its doors — it really is “too big to fail.” The question is how best to manage a reorganization of the business so that, billions of dollars later, we don’t find ourselves right back where we are now in six months or a year. This recession is not going to be over in that time frame; it may even get worse before it gets better. So an infusion of cash into a company that isn’t surviving in this economy will accomplish nothing. Big changes are needed. Wiping out shareholders and replacing management seem like decent places to start; giving new management leverage with the U.A.W. and with creditors seems like a decent second step. Chapter 11 accomplishes all of that — that’s what it’s designed for.
Yes, it’s a drastic solution. So is everything else on the table.